Where is Hatoyama's Democratic Party leading Japan? Is Japan’s Prime Minister, who was swept to power by a public seeking an end to economic and political stagnation, managing to arrest the nation’s decline? “Our honeymoon period is over,” Hatoyama said in a New Year statement. “I would welcome severe criticism.”

High Hopes
In August 2009 a general election in Japan saw the defeat of the Liberal Democratic party which had been governing Japan almost without interruption since 1955. The Democratic Party of Japan, led by Yukio Hatoyama, was swept to power with a huge majority in the lower house, the House of Representatives. Expectations for “Change” were high. The elections, strangely enough, were fought between two policy platforms that were very limited in scope. The DPJ’s platform included: a restructuring of the civil service; a monthly allowance for families with children; a cut in the fuel tax; income support for farmers; free tuition for public high schools; the banning of temporary work in manufacturing; raising of the minimum wage to 1,000 yen; and the halting of any increase in sales tax for the next four years.

Observers outside Japan were bemused to see that economic reform was not the main battlefield of the election. The real key to success, as everyone was quick to point out, was not the coherent platform of Hatoyama but the incredible unpopularity of the then Prime Minister Taro Aso and his party’s lack of credibility, beset as it was by scandals.

The elections promised a breath of fresh air for Japan, but it was not long before the knives were being sharpened against the fledgling Prime Minister who was being accused of not keeping his campaign promises.

Prime Minister Yukio Hatoyama’s approval rating has fallen by a third in just four months and he has, as a result, promised to change his focus in 2010 to create jobs, combat the country’s long standing curse of economic deflation and trigger a solid economic recovery.

“Our honeymoon period is over,” the PM said in a speech for the New Year adding, “I would welcome severe criticism.” It was not long in coming.

A New Finance Minister
Change was not long in coming either. Hatoyama on Wednesday nominated a new Finance Minister, Naoto Kan, a popular politician who is widely known as an advocate of increased spending, a weaker yen, and reducing the power of the bureaucracy. Naoto Kan replaced Hirohisa Fujii, who had been in the job since the elections but who resigned on medical grounds. The appointment is seen as politically popular but may raise a few eyebrows amongst those who already see Japan’s current massive public debt as unsustainable.

A $1 trillion Budget
On Christmas day Japan’s new budget was announced: a record amount of $1 trillion. The idea was to increase the spending power of families and shift the policy agenda away from government spending on public works.

The numbers are not in his favour: the country’s unemployment rate rose for the first time in four months in November to 5.2% and consumer prices fell for the ninth consecutive month.

A Tarnished Image
Hatoyama repeated an apology he made on December 24 after prosecutors charged two of his former assistants with falsifying the source of 400 million yen of campaign funds. The next day he paid taxes he owed after receiving cash gifts from his mother, Kyodo News reported.

His personal reputation was tarnished last month when two former aides were charged with falsifying his campaign finances and he was forced to pay about 600 million yen ($6.5 million) in gift taxes.

Approval Rating
The honeymoon is indeed over if the Hatoyama government’s approval rating is to be believed. His cabinet had an approval rating of 50% in a Nikkei newspaper survey from Dec. 28, down from 75%in September.

Foreign observers, particularly from the US, are closely following disfcussions with President Obama’s administration about where to move the U.S. Futenma Air Base on Okinawa, home to more than half the 47,000 American military personnel stationed in Japan. Secretary of State Hillary Clinton summoned Japan’s ambassador Ichiro Fujisaki on December 21 to reiterate that the U.S. expects Hatoyama to honor a 2006 agreement regarding the base signed by the previous government.

“We would like to strengthen the Japan-U.S. alliance,” Hatoyama said in his New Year address, adding that he also wants to ease the burden on the people of Okinawa.

Bureaucracy stranglehold
Japanese bureaucracy is another stumbling block. The DPJ is trying to overcome the long-standing stranglehold of the bureaucracy over the very apparatus of government. However, sweeping this massive bureaucracy aside is unthinkable. This is something of a Catch-22 situation as the government would need the agreement of the powerful bureacratic mandarins to slowly emasculate the civil service that they control – all for the good of the country. This chnge was one of the mainstays of his electoral platform and Hatoyama’s government will be judged on this rather sooner that he would wish, given the size of the task – July 2010 will see the elections to the Upper House

Geopolitics
The election of Hatoyama and the coming to power of the Democratic party have signalled two fundamental changes: the first is the simple fact that a new generation has taken the helm, a generation not burdened with the politcal baggage of WW2, and the second is that both the traditional economic and foreign policies will shift radically.

Hatoyama has already stated that he wants to see a change in foreign policy with a more independent Japan and a less US-centric foreign approach. The Prime Minister is taking a more regional Asian approach, concentrating on bi-lateral negotiations with China and South Korea. It has undoubtedly not escaped Hatoyama’s notice that China and India are clearly the two front-runners as emerging Asian superpowers, threatening Japan’s status in the region. This has upset both economic and security certainties that have existed since the end of WW2.

Japan is still struggling to come out of its “lost decade” – the recession of the 1990s – when its asset-inflated economy collapsed, triggering a period of bank failures, one per cent annual growth rates and economic stagnation. China is projected to overtake Japan as the world’s second largest economy by the middle of 2010, but Japan’s global and economic clout built over the years is unlikely to diminish soon.